Category: Economics for Business: 8e Ch 29

In the 1990s UK living standards were estimated to be 4% below those of the USA, 33% less than in Germany and 26% lower than those in France. However, faster economic growth in the past two decades has, according to Oxford Economics, led to average incomes overtaking those in the USA and rising some 8% more than those of France and Germany.

UK living standards outstrip US Times Online (6/1/08)
…but at least we’ve got one up on the Yanks Guardian (6/1/08)

Questions

1. Explain the difference that the value of sterling makes to the measure of the standard of living.
2. “With an adjustment made for this “purchasing power parity”, the average American has more spending power than his UK counterpart and pays lower taxes”. Define what is meant by purchasing power parity (PPP). Why does the standard of living need to be measured at PPS rates?
3. Discuss the principal factors that have led to the increase in the standard of living in the UK.

Inflationary expectations can be an important determinant of the actual level of inflation and so the Bank of England monitor people’s perceptions of inflation closely. Expectations of inflation are currently at their highest level in eight years.

Questions

1. Explain the transmission mechanism by which higher inflationary expectations are translated into inflation.
2. What are the key determinants of inflationary expectations?
3. Discuss strategies that (a) the Bank of England and (b) the government can adopt to reduce inflationary expectations.

The Governor of the Bank of England, Mervyn King, has signalled that the next year may be the toughest for 15 years with lower economic growth than previously forecast. So, is the UK economy going off the rails?

Questions

1. Explain the main reasons why the Governor of the Bank of England expects a worse than forecast level of economic growth in 2008.
2. Discuss the extent to which a cut in interest rates will help prevent an economic slowdown. What adverse effects could follow from such a policy.
3. Discuss one other policy that the government could adopt to try to reduce the extent of the forecast slowdown in economic growth.

The article linked below is a blog article by George Monbiot looking at the rise of neoliberal economic views and discussing whether these are simply an intellectual justification for the rich and powerful to reinforce their position.

How the neoliberals stitched up the wealth of nations for themselves Guardian (Comment is free) (28/8/07)

Questions

1. Write a brief summary of the neoliberal views of the founder of the Mont Pelerin Society – Friedrich Hayek.
2. Explain the neoliberal argument that “….. we are best served by maximum market freedom and minimum intervention by the state. The role of government should be confined to creating and defending markets, protecting private property and defending the realm.
3. Discuss the view espoused by George Monbiot in the article that neoliberal policies like “minimal taxes, the dismantling of public services and social security, deregulation, the breaking of the unions” serve to make the elite even richer and simply act as a “wealth grab“.

Now that Tony Blair has announced that he is to step down as Prime Minister, the media has started to consider his legacy. The two articles focus on the economic legacy. While the BBC one is quite factual in its approach, the article by Larry Elliott from the Guardian is less complementary about his legacy.

The business of Tony Blair’s decade BBC News Online (10/05/07)
Blair’s legacy: a fantasy island trying to live beyond its means at every level Guardian (14/05/07)
Blair’s economic record (video) BBC News Online (10/05/07)


Questions
1. Explain why Larry Elliott considers that we are living on a ‘fantasy island’.
2. Explain the main economic changes that have been implemented during Tony Blair’s time in office.
3. Discuss the extent to which the economic situation has improved under Tony Blair for (a) firms and (b) consumers.